Permissive Aggregation

[Dennis Povloski]

I would like to combine two plans for coverage and non-discrim. One is the existing cash balance plan that runs for the full calendar year. The other is a new 401(k) profit sharing plan which also uses the calendar year, but because it is a new plan, there is a short plan year.

2 questions:

1. I know that in order to permissively aggregate, plans must have the same plan year. Does the short year in the 401k mean that I cannot combine the two plans?

2. If I can combine the two plans, what period is the compensation measured over? The cash balance plan uses the full year's comp, and the 401(k) uses the short year's comp.

[Tom Poje]

'because its a new plan, means there is a short plan year'

this is not necessarily true.

certainly no one can defer before the 401k feature is in place, but the plan could have an effective date of 1/1 (e.g. profit sharing could be made based on the whole year)

I think for testing in that scenario you would take seperate E-Bars and add them

e.g. the e-bar for deferrals is (deferral for the period / comp for the period) + ....

......

since 1.410(b)-7(d)(5) says "Same plan year requirement" and "...unless they have the same plan year"

I would say you can't aggregate the plans if you do indeed have a short plan year since the plan years are not the same.

[MWeddell]

I've taken the opposite conclusion as above, while warning the client that it is an aggressive position.

I've interpreted the "same plan year" requirement to be satisfied if both of the plan years end on December 31. I don't know of any IRS or Treasury guidance that clarifies that both plan years must begin and end on the same dates to meet the "same plan year" requirement.

[Blinky the 3-eyed Fish]

I think the opposite conclusion should be reached because you too know nothing that says that same plan year doesn't mean exactly that. A plan year with a different beginning but the same ending is not the same plan year by definition.

I have a feeling though this question has been answered in a Grey Book somewhere. I just am too lazy to look it up.

[AndyH]

I've looked at this before and agree with Tom and the fish as usual. A red fish with two eyes ain't the same as a red fish with three eyes. The same means the same. But I also agree that the first year need not be a short year.

But I don't think it's in any colored book; I don't think it needs to be.